The Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill includes the following proposed changes to the tax law:
Employee share schemes
Some employers, particularly when starting in business, like to compensate their employees with some shares in the company mainly because they can’t afford to pay market wages and this is a way to compete for good employees.
Obviously, if you issue shares in lieu of wages, it is income and taxable but usually neither the employer nor the employee can afford to pay the tax.
As from 1 April 2026 the date for paying the tax is going to be deferred until there is a “liquidity event”. This means something happens which should provide the cash needed. There are three liquidity events:
These schemes are available for private unlisted companies. The employer must notify Inland Revenue and the employee of the election at the time the shares are issued.
Employers are allowed to issue their employees with shares, without incurring tax. The scheme is already in existence but the current Bill before Parliament proposes increasing these thresholds as follows:
Cash basis person
Investors will be aware at a certain threshold they have to account for income from “financial arrangements” on an accrual basis. This means you have to bring into account money earned at balance date but not yet received for interest-bearing investments, as opposed to investment in equities (shares, unit trusts).
There are three of these thresholds.
Most people get caught by either the “absolute value” threshold for the total amount of your financial arrangements (investments plus money owing by you) or the total interest threshold (Interest income plus expenditure on interest) on those financial arrangements. The figure for the total of financial arrangements used to be $1 million but is being increased to $2 million.
The interest threshold has gone up from $100,000 to $200,000.
There is a third threshold. Called the deferral threshold. Here is the calculation:
(Accrual Income – Cash Basis Income) + (Cash Basis Expenditure –Accrual Expenditure). This threshold is to be increased from $40,000 to $70,000.
Gift cards – open loop
Our front page article in the autumn 2025 newsletter told you all about gift cards.
Under the current law the correct way to account for tax on “open loop” gift cards is to treat them as a bonus and tax them as wages. An open loop card is one which can be widely used for purchases such as a Visa card.
Many employers were treating the cost of these cards as fringe benefits. For bigger organisations, where the $22,500 threshold mentioned elsewhere in this newsletter would generally be exceeded, this treatment would not make any difference to the amount of tax collected by Inland Revenue.
This law is to be revised from 16 April 2025. It will become permissible to treat these cards as classified fringe benefits. The exemption available for unclassified fringe benefits will not apply.
People returning to New Zealand and new residents
The government is concerned good brains are being turned away from this country because of the way we tax shareholdings in unlisted foreign companies.
The new rule, known as the Revenue Account Method, is being created for taxing returning New Zealanders, who have been out of the country for at least five years, and those who have never lived here and become New Zealand residents.
There is a list of conditions and the method of tax is complicated to explain. If you or someone you know could qualify, please get in touch with us.
Do you supply electricity to the National Grid?
The law is to be changed so a natural person, who contributes their electricity to the National Grid, and who generates the electricity from a dwelling, will not be taxed on the income.
Unclassified benefits for employees
You will be aware if an employer makes a gift to an employee, the value of the gift is a fringe benefit. It is an “unclassified” gift, there is an exemption of $300 per employee per quarter with a maximum of $22,500 in total for a year.
For example, I give Christmas presents each worth $200 to all my staff. Provided I don’t have too many staff and when I include other gifts during the year, the total value does not exceed $22,500, I get an exemption from fringe benefit tax.
What happens if instead of making the “unclassified” gift myself, the employee actually purchases the gift and then I reimburse them for the cost? Answer: the reimbursement used to be taxable income but the law is now being changed from 1 April 2026 and it is to be treated as a fringe benefit.
